Enhanced US money laundering enforcement causes nerves for banks here

Domestic banks are paying extra caution in running their branches or offices in the United States, after U.S. authorities ordered a NongHyup (NH) Bank branch in New York to make corrective measures to enhance anti-money laundering policies and compliance.

According to bank sources on Sunday, NH Bank, owned by the National Agricultural Cooperative Federation (NACF), was asked for a written agreement with the Federal Reserve regarding the New York branch’s anti-money laundering efforts.

The Federal Reserve states that it sustains formal enforcement against branches and agencies of foreign banking organizations in the U.S. and their parent banks for violations of laws and regulations and for improper practices. A written agreement is one of the measures through which banks are forced to improve their practices. Stronger measures include orders to cease an activity, prohibition of operations and removal.

Also, New York’s Department of Financial Service (DFS) will announce its actions on the New York branch on Jan. 19 (local time).

Sources said KB Kookmin, Shinhan, Woori and KEB Hana banks, which have branches or corporate offices in the U.S., have been under scrutiny since last year.

“Korean banks mostly have branches or corporate offices in New York, thus they are keenly watching the DFS’s move,” a bank official said. “Whether it is a routine check or they (the U.S. financial authorities) got suspicious about certain matters remains to be seen.”

Last March, the Industrial Bank of Korea (IBK) entered a written agreement with the Federal Reserve and the New York DFS. This came after an IBK New York branch was found to have “deficiencies relating to the branch’s risk management and compliance with applicable federal and state laws, rules, and regulations relating to anti-money laundering compliance.”

Though the investigation did not mention suspicious activities involving the branch, it found IBK’s efforts in fighting money laundering and reporting suspicious activities to be deficient. They agreed management would submit a written plan to enhance oversight of the branch’s compliance with anti-money laundering requirements and the branch would increase the number of law-abiding monitors from one to six after the agreement.

Recently, the U.S. has been enhancing its efforts against money laundering, requiring foreign banks operating in the country to comply with tougher regulations.

According to the New York DFS, Italian bank Intesa Sanpaolo was fined $235 million last December for repeated violations of anti-money laundering laws. A month earlier, the Agricultural Bank of China was hit with a $215 million fine for violating such laws and masking potentially suspicious financial transactions. In August 2016, DFS fined Mega International Commercial Bank of Taiwan $180 million for violations and ordered it to install an independent monitor.

“As the U.S. authorities are enhancing their anti-money laundering laws, domestic banks are also required to increase budgets and other resources relating to anti-money laundering at their U.S. branches,” another bank official said.